Two homeotic genes, Dlx and Msx, appear to regulate development of mineralized tissues, including bone, cartilage, and tooth. Expression of Msx-1 and Msx-2 has been studied during development of the osteoblast phenotype, but the role of Dlx in this context and in the regulation of bone-expressed genes is unknown. We used targeted differential display to isolate homeotic genes of the Dlx family that are expressed at defined stages of osteoblast differentiation. These studies were carried out with fetal rat calvarial cells that produce bone-like tissue in vitro. We observed a mineralization stage-specific mRNA and cloned the corresponding cDNA, which represents the rat homolog of Dlx-5. Northern blot analysis and competitive RT-PCR demonstrated that Dlx-5 and the bone-specific osteocalcin genes exhibit similar up-regulated expression during the mineralization period of osteoblast differentiation. This expression pattern differs from that of Msx-2, which is found predominantly in proliferating osteoblasts. Several approaches were pursued to determine functional consequences of Dlx-5 expression on osteocalcin transcription. Constitutive expression of Dlx-5 in ROS 17/2.8 cells decreased osteocalcin promoter activity in transient assays, and conditional expression of Dlx-5 in stable cell lines reduced endogenous mRNA levels. Consistent with this finding, antisense inhibition of Dlx-5 increased osteocalcin gene transcription. Osteocalcin promoter deletion analysis and binding of the in vitro translation product of Dlx-5 demonstrated that repressor activity was targeted to a single homeodomain-binding site, located in OC-Box I (-99 to -76). These findings demonstrate that Dlx-5 represses osteocalcin gene transcription. However, the coupling of increased Dlx-5 expression with progression of osteoblast differentiation suggests an important role in promoting expression of the mature bone cell phenotype.